Asymmetric oil prices and trade imbalances: Does the source of the oil shock matter?

Abstract

We examine the asymmetric effects of oil supply shocks, shocks to global real economic activity, and oil-specific demand shocks on the oil, non-oil and overall trade balances of a large sample of oil exporters and oil importers. Our empirical strategy accounts for endogenous oil prices, heterogeneous parameters, and error cross section dependence within a panel framework. We find that the pattern of asymmetries in the oil price-trade balance relationship depends on the source of the shock. For both oil exporters and oil importers, oil supply expansions are more important than oil supply disruptions; we discuss the role that Saudi Arabia plays in limiting the global effects of oil supply disruptions. Although increases in global demand deteriorate trade balances for oil importers and improve them for oil exporters, decreases in global demand have a similar, rather than an opposite effect. Our results corroborate the existing evidence that oil price increases only generate large global imbalances if they result from demand-side shocks; and we present new evidence that oil price decreases only benefit oil importers if they result from supply-side shocks.

World Oil Price Shocks in Macroeconomic Asean +3 Countries: Measurement of Risk Management and Decision-Making a Linear Dynamic Panel Approach

“…In his research in Middle East and North African (MENA) countries, the MENA region is vulnerable to shifts in oil prices only because certain member countries are the major producers and exporters most likely to be impacted by the decline in oil prices because most of their income comes from oil exports. Meanwhile, other Member Countries are oil importers which may benefit from lower oil prices as substitutes for the production of some products but may have a negative impact in the form of reduced remittances, foreign aid, and foreign direct investment as a result of lower revenues from oil exporting countries due to lower prices Lardic and Mignon (2006); Mehrara (2008); Mendoza and Vera (2010); Çatik and Önder (2013); Serletis and Istiak (2013); Moshiri (2015); Charfeddine and Barkat (2020); Jibril et al (2020) have demonstrated that oil price shocks are asymmetrical in that positive and negative shocks to oil prices of the same size may have different consequences on the country's economic development.…”

Drivers of CO2-Emissions in Fossil Fuel Abundant Settings: (Pooled) Mean Group and Nonparametric Panel Analyses

“…The PMG estimator also accounts for the heterogeneity in the short-run responsiveness, error variances, and the intercepts in the panel datasets [76]. This is the reason for the increasing popularity of the PMG-estimators for the assessment of the IER since the mid-2000s [77][78][79].…”

The Oil Price and Trade Nexus in the Gulf Co-Operation Council Countries

“…In another argument, the decreasing price of oil does not necessarily have with certainty the same sign or magnitude of effect compared to the effect of increasing oil price. Thus, asymmetry is expected, and the literature has also documented an asymmetrical impact of oil prices on the trade balance [7,[10][11][12][13][14]. Rafiq et al [7] claimed that decreasing oil prices would support the trade balances of oil-exporting countries if a percentage of the increased demand was greater than the percentage of the decline in oil prices.…”

“…The testing of the effect of oil prices on the trade balance is limited in the global literature [5][6][7][11][12][13][14]39]. Salisu [40] investigated the asymmetrical impact of oil prices on inflation in oil-exporting countries, and Hatemi-J and El-Khatib [41] tested the asymmetrical impact of oil prices on the exchange rates.…”

“…Salisu [40] investigated the asymmetrical impact of oil prices on inflation in oil-exporting countries, and Hatemi-J and El-Khatib [41] tested the asymmetrical impact of oil prices on the exchange rates. However, testing of the asymmetrical impact of oil prices on the trade balance is relatively scant [7,[11][12][13][14]. Some studies have probed an asymmetrical impact of oil prices on the trade balances in oil-exporting economies [7,11,13]; however, no study focused on the GCC countries' panel in particular.…”